Fujitsu and Infinity merger a good fit

Chairman's report

 

2006 Chairman’s and CEO’s Review

This Review highlights key aspects of the 2006 result and prospects moving forward, both from an Infinity and an industry perspective, and also the likely trading environment. 

Key features of 2006 trading

We went into 2006 with an expectation that our trading results would be lower than the 2005 profit of $4.1M. The 2006 trading profit of $2.1M represents a return of approximately 21% on shareholders funds. This outcome was $1.0M below our budget, and reflects pressure on revenues, margins and costs.  Revenues were down overall from $65.6M to $61.2M. 

This decline was driven largely by two large accounts where revenues were significantly lower in 2006 because less work was done in the areas where we contribute. In one other large account, work was switched to a recently acquired in-house capability. While we won new business to further diversify our revenue base, this new work and our ability to manage costs was not enough to achieve the profit result budgeted for. In particular the challenge of replacing work in Auckland for our Northern Regional unit has taken longer than we anticipated.

CHAIRMAN'S & CEO'S REVIEW

“Infinity Solutions really listened to what we wanted from an operations point of view. It’s always difficult to balance the needs of different stakeholders and they certainly brought together the parties and got their head around what needed to be achieved.” Debbie Tehau, Systems Manager, Cedenco

INFINITY GROUP | 2006 ANNUAL REPORT P.

This underwhelming introduction reflects a disappointing period in which results were below the excellent achievements of 2005. However, we continued to develop the business particularly in the Southern region, notably in the South Island and some of our software and consulting capabilities. The Infrastructure Technology division, while not selling at its normal very high standard in 2006, has developed an exciting set of customer opportunities for 2007.

In the Northern Region we are wrestling with the challenge of building new revenue streams with the input of new sales people and management. This task always takes longer than you hope for, but we are confident that we have improved the quality of the skills being applied and the level of effort and focus. This lower result masks the substantial and ongoing development of the people who make up Infinity Solutions, which is reflected in their achievements and the many positive compliments received from customers.

“We no longer have to cross our fingers and hope that nothing goes wrong. Infinity Solutions and NetApp are a very strong team. The technology is industrial strength and the people supporting it ensure we get the best out of it.” Yann Teboul, IS Operations Manager, Turners & Growers

“I don’t know how we managed without it. The more Infinitylaw does for us, the more workable the business becomes." Sharline Fitzgerald, Manager, Gawith Burridge

INFINITY GROUP | 2006 ANNUAL REPORT

Performance highlights

In the South Island we have achieved our third consecutive year of growth in revenues and profits. We are steadily increasing the customer base we serve, and developing our capability to meet a growing set of customer needs; The Wellington Software team continues to develop its reputation and the mixture of work and advice we are responsible for. 

Our project expertise and experience is developing new and larger software project opportunities; Infinity Transport performed strongly, particularly building on the completion of the large Express Couriers project completed at the beginning of 2006; Infinitylaw has continued to develop the service we offer law firms, with ongoing investment in the quality and value to the customer of the new upgrades made during the year. We are very positive about the opportunity we have working with existing customers, and the prospects that exist for new customers in New Zealand and Australia; We have made real strides with the sale of “VoIP” products (from Avaya), new managed service tools and a small data centre offering which enables customers to “rent” server processing power and storage. 

We are better placed in this important IT operations and support area to address the changing opportunities for this capability; The Consulting practice has continued to develop helping customers clarify where they are at and how they can get to a new level of goal achievement; Investment in developing a new medical records capture and management solution is starting to yield dividends with health boards now starting to take up our solution; We have strengthened our position in the ERP space with MS Dynamics Nav and built on our Microsoft Gold Partner accreditation.

INFINITY GROUP | 2006 ANNUAL REPORT

CH"Infinity Solutions has a very strong consulting focus for the banking and insurance sector. Infinity Solutions has been delivering consistently for us on both technical and business consulting assignments. We would not hesitate to recommend Infinity to other organisations." John Taylor, Head of Technology, BNZ Insurances, Bank of New Zealand Looking forward

We see three key trends creating opportunities for Infinity Solutions in the market place: the need for service. Although IT has always been a service industry, the market demands new levels of service. This requires appropriate processes, supporting systems, skills, attitude and culture; the opportunity to align people, process and technology with real business goals and new performance expectations. There is a scarcity of people, and an absolute need for technology to help reduce costs and enable new levels of performance in NZ organisations; the integration of “ICT” – saving money and enabling new organisational performance with digital communications and IT infrastructure working together. 

The hardware and software for IT and networking technologies are now similar and compatible. VoIP is enabling major savings in telco spend, and lower communications costs are helping realise cost savings when infrastructure is consolidated and centralised to achieve efficiencies. There is also the question of the impact of the “off-shoring” trend (the transfer of work to lower cost countries). There are clearly risks in the medium term from this phenomenon.

In the shorter term, it is having the effect of continuing the process of hollowing out or reducing investment in new capability within the large service providers in New Zealand. Multi-nationals are investing more in capability in India, China and the Philippines than in New Zealand. This is: challenging the ability of the large players to engage with local businesses on account management, business analysis and solution design; and changing their ability to implement and integrate locally, creating opportunity for local service businesses. At the moment, it would be fair to say that there is as much opportunity as threat from this “off-shoring” trend.

INFINITY GROUP | 2006 ANNUAL REPORT

P.“One of the great things about Infinity Solutions is that they know their stuff, which is extremely valuable to me.” Walter Chieng, Director of ICT, Saint Kentigern College

“Infinity Solutions has been our technology support partner for the last 10 years. They provide us with an excellent, customer focused service within a flexible contract which enables us to utilise the right resources at the right time to meet our needs without us carrying the overhead of employing many varied IT specialists." Kate Amos, CIO, Hutt City Council Infinity People

We are fortunate to have a very talented group of people working together to achieve results for themselves, our customers, our partners and Infinity Solutions. Overall in 2006, we did not perform at the high standard of 2005. We remain committed to raising the bar and there are many individuals and teams that performed well. 

These people and teams see opportunities to achieve more. For the individuals and teams that did not provide the expected level of results in 2006, we know that the performance challenge starts with our personal responsibility and commitment. We have shown we can perform at higher levels than 2006, and are realistic about the skills, tactics and focus we need to address to once again demonstrate that performance.

INFINITY GROUP | 2006 ANNUAL REPORT P.

Market and Trading

There is a perception that there is a shortage of skills, although we are yet to encounter a situation where we could not cope with another project or additional support work. Many “in-sourced” or “mixed-sourced” (part outsourced) customer organisations will bear the brunt of skills shortages, and revisit how they get work done from a practical perspective. This will lead to more out-sourcing.

Shareholders

Dividend

As previously advised, the company’s dividend policy is to pay out approximately 30% to 50% of the annual net surplus after tax. In this regard, Infinity Group will pay a dividend for the 2006 year of 2 cents per share which is equal to last year’s dividend. This totals $1.17 million which is 55% of the headline profit. Notwithstanding that it is outside the upper limit of our policy, Infinity has a strong financial position with an operating cash flow of $2.13 million and a year end cash position of $5.93  million – this is an excellent outcome given that we returned $6.46 million to shareholders in 2006 in the form of a dividend and a share buy-back. Given carry forward tax losses, only 50% of the dividend will be imputed. The dividend will be paid on 11 May 2007 to those shareholders on the company’s share register at 5.00p.m. on Friday 4 May 2007.

Unlisted

As indicated in last year’s annual report, the company listed on the Unlisted internet-based trading facility on 10 August 2006. Unlisted provides an efficient and simple means for shareholders to  contact approved brokers and buy or sell shares, should they wishto do so. To date there has only been one small trade.

“Infinity Solutions continues to deliver highly professional consultancy services to New Zealand Qualifications Authority. Since we started working with Infinity Solutions in 2004 our confidence in their team of professionals has been growing stronger continuously. It is key to have a partner listening to our needs and delivering an exceptional service. Thanks Infinity, and keep up thegood work.” Paul Everett, CIO (Acting), New Zealand Qualifications Authority

INFINITY GROUP | 2006 ANNUAL REPORT

Conclusion

The Board of Infinity Group and Management of Infinity Solutions would like to thank our employees, customers, partners and shareholders for their contribution to 2006. This industry, more so than many others, is dependent on the quality of its people. Infinity people have demonstrated that by focusing on service delivery excellence and customer satisfaction they can continue to be recognised as trusted advisers. These qualities will continue to improve the depth of our long-term customer relationships. 2006 was a year of modest performance. We are addressing the areas that held us back in 2006 and we are positive about building the business in 2007 in order to go into 2008 in a much stronger position.

Stuart Robb, Paul Collins, Chairman Chief Executive

28 March 2006